John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation today announced a Senate Commerce Committee investigation into certain e-commerce marketing practices that generate thousands of mysterious monthly charges to consumer credit cards.

On many well-known websites, including Fandango.com and Orbitz.com, after consumers make a purchase, a hyperlink or “pop up” window appears and offers consumers a cash back reward if they sign up for a company’s online membership service.

The practices? Pre-acquired account telemarketing and "free-to-pay" scams. Without your informed consent, if any consent at all -- a company you "trust" (some of the companies you used to trust were called "banks") shares your confidential credit card, debit card or even checking account information with a "marketing partner" that it "trusts" to provide it with massive commissions after it signs you up for products you didn't order and clubs you didn't join.

In the free-to-pay variant, you might get a few weeks free. But unlike the Mickey Mouse Club, you don't even get a cool hat. You just get monthly bills and find it a royal pain in the neck to get your money back.

Yes, Virginia, it is "very true" that websites are sharing your credit card number with third parties that bill you for products you didn't order and club memberships for clubs you didn't join. But, you say, "I just clicked on a "special offer" popup and immediately closed the horrific page of junky offers. I had no idea they could, or would, enroll me for looking at a page for two seconds. They can do that?"

Yes, websites could and yes, they would. And they have for years (my previous blog). But maybe, as part of this investigation and the renewed Congressional oversight of the financial system, the old problem of "pre-acquired account telemarketing" will finally be solved.

The 1999 Gramm-Leach-Bliley Financial Services Modernization Act was supposed to fix a lot of things. It was supposed to remove barriers that prevented financial firms from becoming giant one-stop financial supermarkets that would create synergies, boost competition, offer consumers choices, lower prices and make America strong. How's that going for you?

In response to a rotten privacy scandal involving Memberworks and U.S. Bank, first uncovered by the Minnesota Attorney General, GLBA was also supposed to stop banks and other firms from sharing your credit card, debit card and even checking account numbers with "trusted" marketing partners without your consent. Who needs identity theft? An identity thief didn't steal your information and sell it. Your bank had it already and sold it.

Just as its consolidation of the banking industry didn't work out, GLBA didn't completely solve this problem, either, so after pressure from the state attorneys general, the FTC made changes to the Telemarketing Sales Rule to further limit the seamy practice of "pre-acquired account telemarketing" as explained in these supplemental comments of the Minnesota and Illinois Attorneys General. As the Minnesota comments make clear, it isn't just hard to avoid being signed up without consent, it's hard to cancel.

Some financial institutions have a “hotline” system so that consumer calls can be transferred directly from the customer service center at the financial institution to the retention department of the preacquired account seller. As one bank told its customer service representatives: We prefer that cardmembers contact the Business Partner directly when
attempting to cancel. However, when a call comes into [Bank], we will attempt to re-route the call to the Business Partner via an abbreviated warm transfer, i.e., we introduce the caller and then the Business Partner handles the call.

Unfortunately, GLBA and the TSR include only limited protections against pre-acquired account telemarketing and related "free-to-pay" scams. Let's hope Senator Rockefeller's investigation leads to more financial privacy reforms, including on the Internet.

Believe it or not, Vertrue even has a page warning about pre-acquired account telemarketing, even though that's its game.

More links:

My testimony from a 2002 Senate hearing on privacy and Gramm-Leach Bliley. Other pro-privacy witnesses at the hearing included the Minnesota and Vermont Attorneys General and Phyllis Schlafly, head of the conservative Eagle Forum. Among the industry witnesses was John Dugan, now head of the obscure, but powerful, federal OCC (previous blog).

An article from the Multinational Monitor about Memberworks and U.S. Bank.

New credit law will regulate Freecreditreport.com, a classic free-to-pay scam.

Well. as you can see, I am so excited about this investigation, this blog could go on and on...

The Sarasota Herald Tribune is reporting that Nancy Nord, the embattled acting chair of the CPSC, will leave at the end of the week. In April, she'd asked President Obama to replace her and earlier this month he announced strong nominees for chair and commissioner.

Nord headed the CPSC during a turbulent period that led to major product safety reforms despite her opposition to them.

I once testified at a hearing where Nord refused to testify because she would have had to sit between me and Sally Greenberg, then with Consumers Union, on the same panel. Then, I testified at a hearing on CPSC reform where Nord was given her own panel, but managed to alienate the assembled Senators by refusing more money and staff for the little agency. She then made her views even clearer in a followup letter-- don't send the money and don't pass reforms. Go figure.

Today, the Consumer Federation of America is launching a national campaign to combat fake check scams. Millions of consumers are lured into accepting genuine-looking checks and money orders and wiring money to crooks in return. The press release link offers tips to consumers.

Today's USA Today editorial Our view on consumer protection: Beyond credit card reform calls for passage of the PIRG-backed Financial Product Safety Commission. The American Bankers Association has a weak rebuttal claiming that the financial crisis wasn't caused by their guys and that enforcing existing laws is the answer. Of course, we agree that enforcing existing laws is part of the answer, but establishing a separate agency not beholden to the banks is a critical part of the solution, too. And the first step in the 12-step plan that the bankers should take right now is to admit that they and their captured regulators were both part of the problem, not apart from it. Previous blog on bank and regulator role in crisis.

The obscure but powerful Office of the Comptroller of the Currency (OCC) has long been the archetype of a captured regulator. Today, Washington Post columnist Steven Pearlstein has a scathing analysis -- The Big Banks' Best Friend in Washington -- of the role of the OCC -- which has preempted virtually all state consumer protection laws while failing to enforce any of its own -- in our nation's financial collapse. In particular, he infers that Comptroller John Dugan must go, especially after his latest action as a member of the FDIC board -- opposing an effort to get big banks to pay more to shore up the bank insurance funds. In testimony and speeches, Dugan has long blamed the failure of the financial system and economy on "anybody but national banks" so it is refreshing to see Pearlstein's rejoinder to Dugan's claims:

But what's particularly absurd about Dugan's argument is that it ignores the reason there haven't been more failures of big banks -- namely that these banks were prevented from failing by a Treasury and Federal Reserve wielding sums of money so large that they dwarf anything the FDIC might spend cleaning up after community banks. Given this history, it requires a particularly warped sense of justice to complain about how unfairly the big banks are now being treated. It also gives a pretty good indication of how thoroughly the thinking of the nation's top bank supervisor has been co-opted by the very institutions he is supposed to regulate.

The Arizona Star has the latest of a series of excellent watchdog, government and newspaper exposes describing the ongoing and longstanding failure of nursing homes to treat the most frail senior citizens like human beings. The story Arizona fails to protect nursing home residents details horrific conditions in many homes, which it attributes primarily to lax state and local enforcement and to the use of forced arbitration clauses (also see the Arbitration Fairness Now website) to prevent litigation against the firms. Other stories have also pointed out that massive multi-state nursing home behemoths use a web of shell corporations to make it harder to hold owners accountable.

The new credit card law signed Friday in the Rose Garden by the President includes some hidden gems. I understand Sen. Carl Levin (D-MI), chairman of the Permanent Subcommittee on Investigations, deserves credit for Section 205 of the law, which brings freecreditreport.com under clear FTC rulemaking authority. The provision will require, in nine months, that any radio or TV ad for this over-priced subscription credit monitoring product or similar product will have to include the following words: "This is not the free credit report provided for by Federal law."

Under the Bush administration FTC, Experian paid some nickels and dimes in civil penalties for deceptively marketing freecreditreport.com (previous blog), but a poorly written consent decree allowed it to continue to extract millions of dollars from the pockets of hardworking American consumers who thought they were getting the free credit report provided by law, which is available from each of three bureaus at the government-mandated site annualcreditreport.com. Instead, freecreditreport.com used the threat of IDENTITY THEFT! or a LOW CREDIT SCORE! to seduce consumers into signing up for an over-priced credit monitoring service with a very shabby short-term opt-out-- if you didn't cancel in a week or ten days, you found out you'd signed up for a $12-15/month product you didn't need. The FTC rulemaking on this must strive to limit the deceptive use of the word "free" in circumstances other than the marketing of credit reports. More on free reports and also Senator Levin after the jump.

Consumers in several states are also entitled to a separate, second additional annual free credit report under state law, by calling each of the three bureaus (Experian, Trans Union and Equifax) directly. Those states are Colorado, Georgia, Massachusetts, Maryland, Maine, New Jersey and Vermont. Here is a good FTC page explaining your free credit report rights, and for those who don't like putting personal data on the Internet, explaining how to get reports under federal law by mail or phone.

The bureaus hate the state laws, so you'll have to listen carefully to their voicemail pick lists to find out how to order your free reports if you live in one of those free report states. Be persistent and complain to your state Attorney General if you think that it is warranted.

Senator Levin also deserves credit for his early hearings featuring consumer victims. Those hearings helped tell the story of unfair credit card company practices. Who could forget the testimony of Wesley Wannemacher, who went just $100 over a $3000 limit, paid Chase Bank that full principal back plus over $3000 more in interest and fees, and still owed Chase $4000 more? (Previous blog.)

A lot of the reporting this week has picked up on industry threats to raise fees and interest on "good" customers and convenience users. Some of that reporting has been lame. It's accepted industry PR spin as facts and missed a lot. First, of course, why did Congress pass a law? Because the banks were acting like corporate criminals. The new law makes illegal unfair practices that cheated people and tricked many "good" customers into becoming "bad" late pays through no fault of their own, which resulted in them paying higher fees and interest to feed the industry's profit maw. Losing income from cheating some people doesn't justify gouging others. Congress will be watching. Second, some of the lost cheating income will be offset by changes in practices, not increases in fees. Banks, for example, may send out fewer solicitations and issue fewer rewards.

Fortunately, there is plenty of thoughtful reporting and blogging out there. Check out today's syndicated column Revealing the Hidden Cost Of Credit Cards by the Washington Post's Michelle Singletary and Credit Card Reform Was a Long Time Coming by Jeff Gelles of the Philly Inquirer. Also see Debb Thorne's blog entry over at Credit Slips.

No, we don't just work on credit card reform! We work to protect taxpayers, too (among other things). On Friday, in addition to the credit card bill, the President also signed PIRG-backed legislation to reform the Pentagon weapons purchasing system (PIRG statement). Also, yesterday's New York Times has a story Turning the Infrastructure Into Profits about the growing international interest in investing in public infrastructure, from roads and bridges to sewage plants. The story also points out that many consultants and developers and their frontmen are taking advantage of government "budgetary constraints" to push, for example, lucrative (to them) toll road privatization deals. As the story notes, U.S. PIRG has been concerned that in most deals we've seen, the risks still accrue to the public, while the private sector takes all the cash.

At the end of last year, there were 15 roads in 10 states in private hands, according to a recent report by the Public Interest Research Group Education Fund, and an additional 79 roads in 25 states are under consideration for some form of privatization.

Grimm analyzes the failed deal opposed by most Floridians and then closes:

But would-be bidders couldn't finagle a loan for the up-front cash. It says something about the state of the global credit market when big-time corporations can't borrow $500 million to consummate highway robbery.

If only I had known. It could have been me cheating Floridians out of their toll road. I could be peddling the naming rights (think Land Shark Alley), jamming billboards along the berm, charging roadside fishermen hooking fees and cutting a deal with the Seminoles to install drive-through slot machines along the Alley.

Think of the phat lifestyle I could have squeezed out of a public highway. And, as the lease holder, I'd naturally expect first dibs on road kill.

President Obama speaks before signing the Credit CARD Act at today's Rose Garden bill signing ceremony. The president thanked the chief sponsors, Rep. Carolyn Maloney (D-NY) and Senator Chris Dodd (D-CT), who were backed in this effort (from left) by Sens. Chuck Schumer (D-NY), Harry Reid (D-NV) and Richard Shelby (R-AL). Here's some video and a statement from Senator Dodd. More video and the transcript from the White House blog. He also thanked the assembled consumer advocates. It was a great event from our front row seats. In the bottom photo, waiting for the president (it was a little hot), are some of the people who worked tirelessly for reform, some for many years-- from right, Travis Plunkett of the Consumer Federation of America, Tamara Draut and Caleb Gibson of Demos, Eleni Constantine of Rep. Maloney's Joint Economic Committee staff and Nick Bourke of the Pew Trusts. Over the weekend, we'll do some more analysis of the new law, known as the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, including review of some of its little-known sections. Larry Ausubel has also posted some great shots on his home page. That's me, with Travis Plunkett, in the bottom shot on Larry's page. I've posted some more photos after the jump.

A military band played while we waited in a side garden for the event to start. We would have never gotten close to this day had it not been for the early, relentless and forceful leadership of Rep. Carolyn Maloney, shown here with her team, from left Ed Mills, Ben Chevat, Rep. Maloney and Eleni Constantine.That's a shot of Pam Banks on left and Ellen Bloom on right, both of Consumers Union, with Senator Chuck Schumer. I hope one of my friends sends me a quick snap of me with the President, like this one I snagged of Amy Friend of Senator Dodd's Banking Committee staff and President Obama. Finally, that's me on the White House lawn.

President Obama Curtails Bush's Policy of 'Preemption' (Washington Post). Over the last eight years a supposedly conservative president advanced policies that were more pro-big-business than in favor of the small government he allegedly espoused. In particular, he demanded that his business-lobbyist dominated federal agencies assert sweeping, ungiven powers to eliminate longstanding state powers to protect their citizenry from harm. Here is the new Obama Preemption executive order. Previous blog on a recent Supreme Court finding that state common laws giving injured musician right to recover damages from drug company whose actions resulted in loss of an arm are not preempted by an FDA rubber stamp. Consumers are not protected by federal agency guarantees; only the threat of action by state attorneys general or private lawsuits helps prevent unsafe products. Consumers are not compensated for harm by federal agency guarantees. Only the right to sue under common law guarantees compensation to harmed consumers (it also deters wrongdoing). Previous blog on the orchestrated campaign by industry lawyers and Bush White House to write agency rules that asserted preemption authority that the Congress had not given them.

Over at Work Forward, the blog of the National Community Tax Coalition, Mike Evangelist reports that predatory payday lenders are paying bloggers to promote online payday lending. Arthur Delaney first broke the story as Army Of Paid Bloggers Suddenly Promoting Online Payday Loans over at HuffPo.

State attorneys general have long led the fight against payday lenders and are leading new actions against the variant making loans online that are harder to track and harder to hold accountable. For the scoop on payday loans, go to the Consumer Federation of America's paydayloaninfo.org. In HuffPo, Arthur notes that the FTC is considering rules to require paid "bloggers" to disclose that they are shills, not journalists. Good idea.

After the House passed the Credit Card Bill of Rights today on a 361-64 vote, it is on its way to the President. The House separated a controversial unrelated "guns in national parks" provision before it voted; only 279 members voted for the gun provision, then the two were combined to ensure that the bill that went to the President was identical the Senate-passed (90-5) bill. Last night, CNN's Anderson Cooper had me on his show AC360 talking about the bill.

Here's a Fox story based on a Wall Street Journal story Banks Use Life Insurance to Fund Bonuses (pd. subs. may be req'd.) on how big banks are using a tax and accounting dodge to boost already excessive executive bonuses. Businesses are often required by their creditors to take out what was once called "key man" insurance against the death of a principal. This devolved into something called "janitor's" or "dead peasant" insurance, where companies figured out how to take out insurance on all their employees. The catch: the beneficiary is the company, not the low-level employee's family, although some banks are offering some small part of the payout to get employees to sign up and help their bosses make enough money for the house in the Hamptons and the boat. As the WSJ reports:

Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries. Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.[...]

Vermont has enacted tough new VPIRG-backed (Burlington Free Press) restrictions on drug company marketing to doctors and other medical professionals. From the New York Times story Vermont Acts to Make Drug Makers’ Gifts Public by Natasha Singer:

The law, scheduled to take effect on July 1, is believed to be the most stringent state effort to regulate the marketing of medical products to doctors. It would also ban nearly all industry gifts, including meals, to doctors, nurses, medical staff, pharmacists, health plan administrators and health care facilities.

I'm scheduled to appear on CNN Anderson Cooper Show, aka AC360, tonight around 10:20ish re credit cards. Meanwhile, the Washington Post website is reporting tonight (lead story) that NEC head Larry Summers and Treasury Secretary Tim Geithner are working late at the Treasury and having "dinner" -- probably pizza? --talking about the Financial Product Safety Commission first proposed by Professor Elizabeth Warren. We support it.

Statement of Ed Mierzwinski, Consumer Program Director On Senate Passage of the Credit CARD Act

“U.S. PIRG commends the Senate on overwhelming passage of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, S 414, as introduced by Senator Chris Dodd, Chair of the Senate Banking Committee. While the House has already passed a similar Credit Cardholders Bill of Rights, we expect that the House will simply pass the identical Senate bill so Congress can send a final bill for the President to sign before Memorial Day.

For too long, owning a credit card company has been a license to steal. Over the last few years, the banks increased their use of abusive tactics, such as changing due dates so they could trick consumers into paying late. Worse, they charged a double whammy—a high late fee first and then tripled interest rates to 36% APR or more. Second, they started charging good customers higher rates because they supposedly paid some other creditor late (universal default). But that wasn’t enough, so they started raising the rates of customers who’d been late to no creditor, for no reason at all. That was their biggest mistake. Gouging everyone caused thousands and thousands of Americans who just want a fair deal to contact Congress and even the Federal Reserve.

The Credit Card Act bans nearly all retroactive rate increases on current balances, it prohibits universal default in the first year and it protects college students from unfair marketing of credit cards.

I’ve been in Washington twenty years. For the first 19 we couldn’t even get a committee vote on credit card reform despite these practices.

Due to abusive practices by credit card companies, we are now on the verge of historic credit card reform. Is it everything we want? No, we should also ban raising rates going forward, not just retroactively, and we should ban forced arbitration clauses in credit card contracts and reinstate usury ceilings. But final passage of this historic credit card reform legislation will stop big credit card companies, many of which are feeding at the TARP taxpayer trough, from cheating Americans out of their hard-earned money. That will help working families so that they can become part of our economic recovery, not lurch on a credit card debt treadmill. It’s about time.”
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The Senate is expected to enact PIRG-backed credit card reform today. The bill will need to then go over and pass the House to become law before Memorial Day. Today's New York Times story on Credit Card Industry Aims to Profit From Sterling Payers fails to describe the magnitude of the revenue ($48 billion/year) from merchant interchange fees; these in fact, are derived from both convenience users and revolvers and pay for user rewards. So the story's notion that the banks will pile on the fees on "sterling" convenience users is, I think, over-stated-- there may instead be fewer rewards. That is a very good thing for revolvers -- entranced by tiny rewards into piling on debt. Rewards drive excessive card use. Fewer rewards to convenience users offsets the "need" for more revenue.

I took the redeye back from California to DC Saturday night, read the paper and immediately took a Sunday morning nap. In February, 24-year-old Rebecca Shaw took a redeye from Seattle to Newark and climbed into a regional jet co-pilot's seat for work. From the Buffalo News:

The co-pilot’s low pay and brutal coast-to-coast commute were among the ingredients in “a recipe for an accident” that played itself out when Flight 3407 crashed into a home in Clarence Center, killing 50 people, a member of the National Transportation Safety Board said Wednesday.

Incredibly, at the same time, apologists for Wall Street are opposing executive compensation limits because they say, the best will supposedly go elsewhere. Spare me. Let's hope that the administration's anticipated pronouncements (WashPost via LA Times) this week on reining in pay for TARP recipients are tough enough to protect taxpayers and depositors and small investors. And let's hope Congress then continues the necessary job of restructuring compensation risk-reward incentives across the entire financial industry, not just TARP enrollees. Bloomberg.

Wall Street probably pays some 24-year-old bankers hundreds of thousands if not millions of dollars a year in bonuses. Of course, it pays others much, much more. Yet none of the rewards are adequately tied to the longterm impact of Wall Street decisions. All the risks of mistakes are socialized while rewards are passed out something like the way a dog gets a cookie for rolling over two seconds ago, except that the Wall Street dog gets the cookie jar, or maybe the cookie company.

Worse, the apologists say, the financial recovery will be harmed because firms will reject funds needed to stabilize the economy so they can refuse the limits. Give me a break.

More on how bad it is at the regional airline industry: Today's New York Times has a followup Commuter Pilot’s Life Defies Glamorous Stereotype on the regional airline industry and its

"strikingly low pay...flying multiple flights, at lower altitudes...in worse weather...scrambling to get enough sleep... training standards are the same, but whose skills may not be."

I'd expect some to claim I've convoluted two separate issues together. They just don't get it.

When I testified alongside Ticketmaster chief Irv Azoff a few weeks back, he and his army of flacks assured me and the Congress that the Bruce Springsteen ticket fiasco in February was a one-off--it wouldn't happen again. Fans would pay regular prices, not be re-directed to Ticketmaster's legal scalping subsidiary known as Ticketsnow. Well according to the Washington Post, it has happened again, for a show right in the nation's capitol where a New Online Ticket Flap Thwarts Springsteen Fans. Excerpt:

"There are what now appear to be chronic problems with how Ticketmaster uses its secondary market ticket reseller TicketsNow," said Springsteen manager Jon Landau in an e-mail. "We would like our audience to know that this is a problem concerning Ticketmaster and its wholly owned subsidiary TicketsNow. Neither Bruce nor his management have any control whatsoever over these two troubled entities."

In a statement at Mr. Springsteen’s official Web site, brucespringsteen.net, his manager, Jon Landau, wrote that there “appear to be chronic problems” with how Ticketmaster uses TicketsNow, and that he and Mr. Springsteen “deeply resent the abuse of our fans.”

I don't have time to do a real blog on this story, but Charles Duhigg takes a fascinating look at data mining by credit card companies in the story What Does Your Credit-Card Company Know About You?, which will run in Sunday's New York Times Magazine:

The exploration into cardholders’ minds hit a breakthrough in 2002, when J. P. Martin, a math-loving executive at Canadian Tire, decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year.[...] People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.

Over at Fox Business, my colleague Nicole Tichon, U.S. PIRG Tax and Budget Reform Advocate, debated Scott Talbot of the Financial Services Roundtable this morning on the latest taxpayer bailout: Life insurance companies are crawling under the TARP. Here is the direct link to the video. It's a long flash link and works for me. If you cannot get it to work, search on the main Fox video page for the story Insurers to tap TARP. More from Cincinnati Business Journal. Our view: TARP is still a mess. The government needs a strategy it will stick to; the taxpayers need transparency to know what the government is up to with our money. Heck, I couldn't even find a press release announcing this program at either the Treasury or FinancialStability.gov home pages. It may be buried there somewhere. Our main TARP page.

Over at the New York Times, in his story Food Companies Are Placing the Onus for Safety on Consumers, Michael Moss reports that giant agribusiness companies don't want to guarantee the safety of all the food and ingredients in their convoluted global supply chains, so they want consumers to start sticking meat thermometers into pre-prepared stuff they simply want to nuke. Companies have confusing directions that don't always meet the government's recommendations, their own tests don't work to meet the temperature requirements, and even conventional ovens don't solve the supposed problem of uneven heating in microwaves (nukes).

I guess that I could go to work writing slogans for the food companies: